photo: fristle

This is part 2 in a 2 part series on how to lower your auto insurance premiums. The first part covered 10 variables that you can control when it comes to lowering your premiums, while this post will talk about 10 factors that are out of your control – and what to do about them.

Same Message, Different Company. Different Message, Same Company?

We’ve all seen the ads about how switching your auto insurance from ‘the other’ company to ‘our company’ has saved the customer an average of $XYZ. It’s most likely left you wondering how every single insurance company can save you more than every other one. What that same advertisement doesn’t tell you, of course, is how much the guy/gal who didn’t switch saved by staying with their current auto insurance provider or going to a different one.

And while we’re on the topic of auto insurance commercials, I’d like to take this opportunity to call out the marketing department of Geico. Seriously, guys? The gecko was a pretty cool guy and the caveman thing was slightly funny at first, but it’s simply gone too far. And now the googly eyes on a pile of dollar bills that somehow plays that 80’s song by that guy who is trying to sound like Michael Jackson. And running all three ad campaigns on the same medium at the same time? Collect yourselves, people!

Let’s continue with the ads. Wouldn’t you love to hear “Customers who switched to us saved $215 (while those who didn’t switched saved $357)”? When shopping for auto insurance, unfortunately, there really is no easy answer to the question of which company offers the lowest rates. The reason being is that most insurance companies, by design, use a different proprietary formula to determine what price they can specifically offer you. Some of the variables that go into this formula can be controlled by you, but most cannot.

So what should you do? How do you find the lowest rate? Before we go into premium savings strategy, it definitely pays to know what variables insurance companies are looking at when calculating your risk. Let’s take a look.

The Auto Insurance Premium Factors that are Out of your Control

Fair or not, auto insurance companies (and insurance companies in general) are master statisticians and they have determined the risk to have you as a customer for just about everything down to what color shoes you wear. These are traits or characteristics that you mostly don’t have control over, but are often used to calculate your auto insurance premium. Sure, you can change some of these things, but you would rarely change them just to get a break on your auto insurance.

1. Your age: Most policies give a reduction at 21 years of age, or with 5 years experience. A further reduction can be expected at around 24 or 25. Once you hit the ripe age of 70, you can expect the opposite to occur.

2. Your gender: Women are statistically safer drivers. This one surprises me as I’ve been a passenger while my wife is driving. She was in three accidents prior to meeting me and with my set of eyes to prevent her from driving through red lights when her attention wanders, she hasn’t been in any after meeting me. Sorry, honey, it’s true.

3. Where you live: Locales with high rates of accidents or theft can result in a higher premium.

4. Your past driving record: Some insurers look back three years, others look back five years or longer. Depending on the company that is quoting you and how recently you had a major traffic violation or accident, this can have a huge impact on your premium. Don’t worry about that pile of parking tickets in your glove box as they do not impact your driving record and premiums.

5. Your marital status: Married drivers can pay less than single drivers.

6. Occupation: Doctors tend to get in less accidents on average than ice cream truck drivers. Go figure.

7. College degrees: Most insurers give discounts to alums of certain universities.

8. Years of driving experience: similar impact as age.

9. Business use of vehicle: If using your vehicle as part of your job, you are at risk of a higher premium (and probably rightly so).

10. Multiple Vehicles: Are you insuring multiple cars on the same plan? If so, it could result in lower premiums for each vehicle.

Now that you know what you can and cannot control, what can you do about it?

The answer is simple. Shop around. Frequently.

It’s true that you may not have control over a lot of what your premium is based on, but your saving grace is that the auto insurance companies don’t all agree on how to precisely calculate your risk. Until they do, it pays to shop around.

When Should you Shop Around for Auto Insurance?

For starters, it might make sense to shop around after the following events take place:

• When you turn 21.
• When you turn 25.
• 3 years after you have a traffic violation or accident.
• 5 years after you have a traffic violation or accident.
• When you move.
• When your miles driven decreases significantly.
• When you graduate.
• When you get a new job.
• When you get married.
• When you get a life insurance policy.
• When you get a home insurance policy.
• When you add another car to you plan.
• When you install a theft deterrent device.
• When you get a new car.
• When your credit score has improved.
• Whenever you feel like it!

Final Thoughts:

There is no auto insurer who offers the lowest rates to everyone. But there is an auto insurer who offers the lowest rate to you specifically. You just need to find them. And it might be a different insurer six months or a year from now than it is today. That’s why it pays to know what the insurance companies look at, what discounts you might be able to swing, and to shop around frequently.

For more of G.E. Miller’s writings, visit personal finance blog MicroFrugality.com.

New! Compare Auto Insurance with Mint.com.

PhotoDu.de

When it comes to auto insurance premiums, there are a number of factors that you have absolutely zero control over. Most of us like to think that we’re the best drivers to ever hit the road, but we’ve all felt the pain of being 18 years old and having to pay considerably more for the same vehicle than the crazy guy who lives down the street. The injustice!

The good news is that there are a number of factors that you have considerable control over when it comes to your auto insurance premium. In the first of a two part series, we’ll cover the 10 prime factors that you have control over that most auto insurance companies consider in the formulas used to determine how much to charge you.

1. Switch Vehicles

Each vehicle is assessed a different risk variable depending on a number of factors, including category classification, crash test rating, price, cost of replacement parts, and even horsepower-to-weight ratio and how often the model is stolen. If you want a lower premium you should avoid sports cars, expensive vehicles, newer vehicles, and those that are not considered to be top of class in safety (smaller vehicles). Each year, the National Highway Traffic Safety Administration (NHTSA) reports an insurance make and model comparison. Each insurance company should share similar information, should you ask for it.

2. Pay Up Front

Some insurers offer a discount if you pay for the year ahead up front all at once versus a monthly payment plan. If you have the cash on hand to pay up-front, don’t worry about losing it if you switch insurers. Your insurance company is required to pro-rate your total bill and refund you for the days that you won’t be covered under them.

3. Drive Like an Angel

Believe it or not, your driving record is still considered to be one of the top factors that insurance companies look at. Whether you’ve been in an accident or received a major traffic violation within the last few years can have a huge impact on your premium. Some auto insurance companies look back three years, while others look back 5 or more.

4. Cut your Miles

A number of auto insurance companies will offer you a lower premium if you drive less miles. Makes sense for them and for you, right? Moving closer to work might not only save you on fuel and commute time, but it may also decrease your auto insurance premium as well. If you make a move closer to work or end up drastically cutting your mileage driven, call your insurance company to see if it can earn you a discount. A number of insurance companies are offering pay-by-the-mile programs, which may end up costing you less than traditional plans if you rarely drive at all.

5. Improve Your Credit Score

Credit history is becoming a much more highly valued variable that is being looked at by insurance companies (however, this is not allowed in the State of California). We’d recommend that you move to California if your credit history is terrible, however, the cost of living would more than cannibalize any savings in auto insurance.

6. Reduce your Insurance Levels

Whether or not you have collision and comprehensive coverage certainly dictates how much your premium will be, but your decision to carry it really should come down to how much your vehicle is presently worth. Each state has a liability coverage minimum that you should be aware of when determining how much you want to carry. We do not suggest lowering your coverage to the minimum to save money, as that may end up being a big mistake should you get into an accident. However, it might be to your benefit to keep an eye on your liability coverage if it is high and you are in need of cutting your premium.

7. Buy a Vehicle with a Theft Device or have one Installed

Purchasing a vehicle with a theft deterrent system or having one installed will most often get you a discount.

8. Same Insurer, Multiple Policies

Having multiple insurance policies with the same company typically gets you a hefty discount. As if comparing apples to apples wasn’t already hard enough, most auto insurance companies will give you varying levels of discounts for also having a home, life, or other insurance policy with them. You may find that even though one car insurance company would charge you more than another, your ‘total’ insurance cost to go with them is less.

9. Be a Loyal Customer

Loyalty can be rewarded when it comes to sticking with your auto insurance company. As witnessed by the massive amounts of advertising insurance companies partake in, the cost and value to acquiring a new customer is very high. That’s why a good number of insurance companies will give you a percentage off on your total premium each year just for sticking around. It’s also for this reason, especially if you’ve been a cheap customer for them in the past, that they may be a little more willing to work with you in lowering your cost than a Comcast might be. Stick around long enough, and it may be difficult to find a cheaper policy elsewhere.

10. Increase your Deductible

How high of a deductible you set has a significant impact on your premiums. For example, increasing my deductible from $250 to $500 reduced my overall premium by 25%. If you have an older vehicle with a relatively low value it makes a lot of sense to have a high deductible. It makes even more sense if you don’t have collision or comprehensive coverage to begin with – because there is not much else that would make the cost/benefit of having a low premium worth it.

What About All the Factors you can’t Control?

We’ll discuss those and what to do about them in the second part of our series on how to lower your auto insurance premiums.

For more of G.E. Miller’s writings, visit the personal finance blog MicroFrugality.com.

New! Compare Auto Insurance with Mint.com.

The Average American’s Saving Rate

According to the Bureau of Economic Analysis, the average American was only saving 1% of their disposable personal income as recently as the first quarter of last year. That number has jumped to 5% in the 2nd quarter of 2009, the highest percentage in the last decade.

At the same time, according to the US Census Bureau, the average retirement age in America is 62 and average life expectancy is 77, meaning that 20% of the average American’s lifespan would need to be financially covered between personal savings and Social Security. Yikes!

Long-Term Sustainability for the Country

For long-term sustainable economic growth, that’s simply not good enough. The White House realizes that if Americans are saving only between 1 and 5% of their income per year for retirement, then just about everyone is going to need to live almost entirely off of social security. Not only is that unsustainable, it is downright frightening to think of what that might mean for the nation’s financial health.

In his weekly address, President Obama explains, “We cannot continue on this course. And we certainly cannot go back to an economy based on inflated profits and maxed-out credit cards; the cycles of speculative booms and painful busts; a system that put the interests of the short-term ahead of the needs of long-term. We have to revive this economy and rebuild it stronger than before. And making sure that folks have the opportunity and incentive to save – for a home or college, for retirement or a rainy day – is essential to that effort.”

Federal Changes to Retirement Plans

According to White House analysts, half of America’s workforce doesn’t have access to a retirement plan at work. Additionally, fewer than 10 percent of those without workplace retirement plans have one of their own. The federal changes will take effect to address these issues. Some of the biggest changes that could impact you are:

1. Auto enrollment in retirement plans: It will now be easier for smaller and medium-sized employers to automatically enroll workers into retirement plans due to an elimination of paper-work hurdles for employers to offer that option. Employees could still choose to opt out of the retirement plans if they choose to.

2. Saving tax refunds: To make it easier for those owed tax refunds to save, the IRS will allow tax filers in 2010 to recoup their refund by issuing US savings bonds. Last year, over 100 million US households received check refunds. And we all know what happens to most of those.

3. Sick and vacation days can become 401k contributions: It will now be easier for employers to convert (or allow workers to convert) unused vacation and sick leave pay into 401k contributions. Historically, this money is almost always converted into cash.

4. Automatic Percentage Increases: Many 401k administrators already have this, but now employers can boost contribution amounts automatically unless employees opt to have them not to.

Even if you’re not impacted by the government’s plan, there are still a lot of things you can do yourself to make sure you are in good shape for retirement. Start by asking yourself two questions:

What percent of your income are you presently savings towards retirement?

What percent do you need to save in order to retire when you want to?

Then follow this four step action plan to ensure you’re doing everything you can.

1. Boost your Savings. If you’re presently saving 10% of your income, boost it to 12%. If 20%, boost it to 25%.

2. Start a Roth or Traditional IRA. You can contribute up to $5,000 in 2009 ($6,000 if you’re 50 and above).

3. Take advantage of 100% of your company’s 401k match. You can’t beat free money.

4. Run the numbers. The Social Security Administration, Bloomberg, and AARP all have free retirement calculators to help you determine how much you need to be saving.

For more of GE Miller’s writing, visit personal finance blog 20somethingfinance.com.

Photo:uniinnsbruck

Whether you are heading to school for the first time or going back for another year, you’ll quickly have to face a sad paradox. College is expensive and students are perpetually broke. Forget tuition and room and board, the cost of textbooks, software, transportation, and just about everything else is enough to put any aspiring student into debt. It’s almost like there is a target on your back (or your wallet). Rather than sit back and let the debt pile up, try these four simple cost savings strategies to save thousands annually.

Photo:psychobabble

1. Stop Buying, and Start Renting your Textbooks.

Remember those $150 textbooks that you skim through once out of guilt or fear? Every time I went through the checkout line I held deep-seeded resentment about paying outrageous sums for textbooks that I would barely use and then end up selling back to the bookstore at the end of the semester at a fraction of the price I paid for them. You would think that having three different bookstores on campus would result in competitive pricing, only to find that they were all charging the same obscene price right down to the penny.

Studies show that the average student spends over $900 per year on textbooks. But you may not have to anymore. There are now a number of textbook rental sites that claim to offer up to 70% or more off of retail price to rent textbooks for a semester. For starters, you may want to check out Bookrenter, Chegg, and Campus Book Rentals. Additionally, you may be able to find used versions of your books on Amazon, Abebooks, or Ebay. A little competition in the marketplace is a beautiful thing.

Average Savings: At 50% off – $450 per year

2. Ditch the Office!

At some point, we’ve all had to write a paper, present to a class, or use a spreadsheet for a math project. Yes, we’ve all needed to use an office software suite and if you go the Microsoft route when purchasing software, you’ll end up paying approximately $120 for Office 2007.

That’s one option. Fortunately, there are a few other options these days:
Open Office: Powered by Sun Microsystems, Open Office is an open source office software suite that is nearly identical to Microsoft Office. The best part is that the full suite is available for a free download at Openoffice.org. You are even able to share your files in Microsoft office program formats if you need to share them with others.

GoogleDocs: GoogleDocs is a suite of “cloud-based” word processor, spreadsheet, and presentation applications. Although the features aren’t quite up to par with MS Office or Open Office, the programs let you collaborate with others and can import and export into other formats. This makes it a great option when working on projects with other students in real (or delayed) time.

Best of all, they’re free.

Together, these two free options should be more than sufficient in meeting all of your document needs.

Average Savings: $120 per Office version

Photo:Ihoon

3. Rolling Down the Street – In a Bus.

Before the macho types lynch me for suggesting that they give up an opportunity to impress their sorority dream woman, here is a difficult to hear truism: the right date will not only care less that you take the bus versus riding around campus in an SUV, but they may actually respect and like you more for it.

Even if you’re able to find a modest used vehicle at $200/month, you will probably need to add at least another $100 or more per month for insurance and fuel. Additionally, you will be able to avoid all of those extremely frustrating parking tickets (how do they always find you??). In contrast, a search for my alma mater’s bus system yielded a semester-long bus pass for a mere $50.

Average Savings: $2,600 (for a $200/month vehicle with $100/month in insurance and fuel expenses)

Photo:Editor B

4. Open a Local Bank or Credit Union Checking Account.

Even as we trend more towards a plastic society, ATM fees for college students can add up quickly. If you’re attending a school out-of-state or even just out-of-region, your bank or credit union may not have authorized ATM’s. Starting up a free checking account for these petty cash transactions can be a huge money saver.

In 2008, the average cost of using another bank’s ATM was $3.43 per transaction, up 13% from 2007. Back in the day, it wasn’t uncommon for students to make at least one or two ATM withdrawals per week. Avoid this unnecessary expense!

Average Savings: $110 annually (1 withdrawal per week)

What tips do you have for savings money while attending school?

For more of GE Miller’s writing, visit personal finance blog 20somethingfinance.com.

Source:kokopinto

Health insurance premiums in the US have increased in cost by almost 100% since the year 2000, a growth rate three times larger than wage increases over the same period of time. At the same time, one out of every three Americans is uninsured, or underinsured. Moreover, health insurance premiums are more than double for Americans than they are for citizens of the second highest cost nation, Norway.

These daunting facts leave little doubt that health care costs in America have spun out of control and the financial health of each American, and the country as a whole, is dependent upon smart health care reform. What’s not as clear is the right way to go about it. Details on the health care legislation currently making the rounds are sparse and very fluid at this point, but we’ll try to dissect some of the basics and how the plan may impact you if it were to pass in its present form.

What are the basics of the Obama Administration’s health care reform legislation?
So far, this is what can be decoded from the constantly changing legislation.

1. All Americans would be required to be covered by health care insurance – either through out-of-pocket or government subsidy.
2. A new health care insurance exchange market would be created. You can think of this as a gigantic group plan, monitored by the government.
3. You can keep your employer’s plan, if you’d like (and they decide not to drop their plan for the cheaper exchange).
4. Insurance companies would be required to provide a basic level of insurance for everyone who signs up for the exchange. Premiums cannot be increased for those with pre-existing conditions.

When would the reform go into effect?

The Obama Administration had been leading a big push to get a health care reform bill passed quickly by the Senate. However, the details and resulting consequences of legislation of this impact have stamped out that possibility. On Thursday, Senate Majority Leader Harry Reid (D-Nev.) announced that the Senate will not vote on health care reform legislation by the August recess, saying that it is “better to have a product based on quality and thoughtfulness rather than try to jam something through,” as reported by the AP/Boston Globe.

Despite the delay, if the legislation were to pass later this year under the same timeline as proposed, it would go into effect in 2013.

Who stands to benefit the most from Obama’s health care reform?

It’s unclear how the bill will benefit the majority of Americans who already have employer sponsored health care plans at this point. In theory, premiums should be decreased because the insured are no longer footing the bill for the uninsured. The reform aims to immediately help:

1. Those without any insurance.
2. Those who have paid for expensive individual policies on their own.
3. Employees of small businesses that have trouble affording the cost of joining a group plan.
4. Low income Medicare participants who are left paying for whatever is not covered by Medicare for their medical bills and prescriptions.

Whether intended or not, the legislation could also mean more profits for insurance companies by making it a requirement for all Americans to purchase an insurance policy, be it by subsidy or out-of-pocket.

How much is this going to cost?

The legislation is expected to cost $1 trillion over 10 years. Obama insists that it would be revenue neutral, meaning that it would not be an expense added to the budget deficit.

Who is going to pay for it?

The entire tax burden is expected to be placed on the shoulder’s of the very wealthy. Originally, it was to come from a surtax on American households earning over $250,000 annually. However it was recently bumped to those earning over $350,000, and even more recently, those earning over $1 million.

What will happen to my doctor?

Nothing. You can still go to them, and they’ll still be living large in the wealthiest zip codes in your locale.

Who is opposing the present version of the legislation?

1. Republicans: This goes without saying, right? Any new taxes on the wealthy or are sure to meet Republican opposition. This legislation is no different.
2. Democrats: Wow, really? Yes. Some of the more liberal Democrats, led by Dennis Kucinich, have been pushing for the addition of a single payer option. The United States is currently the only high-income industrialized country in the world that does not have some version of a single payer, public health insurance. Single payer refers only to health insurance and payments for health service being funded by a single public fund. Kucinich and others want this option to be included in the legislation.
3. The Obscenely Wealthy: More taxes means less luxury goods and $900 bottles of wine vs. $1,000. Can you blame them?

Where can I find out more?

The White House has created a public site dedicated to providing information and news on health care reform – at healthcarereform.gov.

For more of GE Miller’s writing, visit personal finance blog 20somethingfinance.com.

amycgx

Fresh off of the heels of Congress’s passing of the Credit Cardholders Bill of Rights, President Obama sent a proposed law to Congress, which if enacted, would create a shiny brand new Consumer Financial Protection Agency (CFPA). The agency would not only help enforce the Credit Cardholders Bill, it would expand into the broader scope of consumer protection. Treasury Secretary Geithner summarized the agency by saying, “This agency will have only one mission – to protect consumers”.

Knowing exactly what the proposed CFPA would mean for you is based largely on speculation at this point, and the full effects may not be seen for years (and the bill isn’t expected to go to vote until this fall or beyond). However, it’s fair to say that the primary reason behind the proposed creation of the new agency would be to police and put an end to the type of greedy and unfair predatory practices by financial institutions (mostly banks and credit providers) that has resulted in many borrowers suffering from undue financial hardship.

Citing the agency’s crackdown on predatory mortgage lending techniques, President Obama states, “You’ll be able to compare products and see what’s best for you. The most unfair practices will be banned. Those ridiculous contracts with pages of fine print that no one can figure out – those things will be a thing of the past.” Although, I find it hard to imagine that my next mortgage closure will result in anything less than a headache and a mild case of carpal tunnel, having an agency focused on enforcing simple, concise, and clear terms is certainly a step in the right direction.

According the White House’s official press release on financialstability.gov, the CFPA would

1. Provide protection against unfair credit card rate increases and late fee traps: The agency will enforce the credit card bill enacted by Congress and President Obama this spring, taking responsibility for enforcing the ban on unfair rate increases and for the implementation of new rules preventing late fee traps.

In other words, the Credit Cardholders Bill of Rights that was passed recently, but doesn’t go into effect until mid 2010 needs a governing body. The CFPA would be that governing body.

2. Set guidelines for simple “Plain Vanilla” products: The agency could create guidelines for standard mortgages without prepayment penalties; that are fully underwritten with documented income; that collect escrow for taxes and insurance; and have predictable payments.

Remember all of those funky ARM’s, jumbo loans, and other sleek mortgage names masking a product that is designed to rip you off? The CFPA would seek to put an end to these type of products.

3. Duties of care for mortgage brokers: The agency could require mortgage brokers to owe a duty of best execution among available mortgage loans to avoid conflicts of interest between themselves and the homeowners, and a duty to help ensure that only appropriate loans are offered.

A colleague who once worked for one of the nation’s largest mortgage lenders once told me that ‘in the good ole days’ mortgage underwriters would look for any possible reason to offer the largest loan possible and ignore little technicalities such as the borrower not providing proof of income. The goal of the CFPA would be to put an end to this type of practice and ensure that financial institutions are offering the right loan amounts to the right people in the right situations.

4. Ban unfair side payments: The agency could ban unfair practices such as “yield spread premiums” – side payments from lenders that encourage mortgage brokers to push consumers into higher priced loans.

Essentially, what the press release is trying to say here is that the CFPA would monitor and attempt to put an end to broker/institution side arrangements that are designed to steer you into a mortgage that may not be the best for you, but results in the mortgage broker getting a commission.

If you’d like to curl up and read the full version of the CFPA-Act bill, you can check it out here.

The Opposition

The financial industry will surely be up in arms over the bill, because it provides the type of oversight that they have been able to evade for so long. Opponents argue that the CFPA would limit product innovation and dictate what type of loans consumers should receive in certain situations.

Didn’t product innovation and offering ‘customized’ loans mostly get us into this mess?

For more of GE Miller’s writing, visit personal finance blog 20somethingfinance.com.

Paul Keleher

As the credit crisis winds toward its inevitable conclusion, the number of customers unable to pay off their credit card each month is swelling. And credit card companies, facing the very real possibility of customers defaulting entirely, are now willing to come to a settlement for substantially less than the amount owed. With the credit card companies ready to deal, here’s what you need to know to get your own personal bailout.

Credit Cards are Unsecured Loans

Credit cards are a form of unsecured loans. What does this mean in layman’s terms? An unsecured loan is a loan in which a borrower is not required to use an asset as collateral in order to receive credit. In contrast, secured loans (mortgages or auto loans, for instance) use collateral that may be repossessed should the borrower default on their payments. By the nature of their business models, credit cards and other forms of unsecured loans typically offer shorter payback terms and higher interest rates.

Bailouts for the Delinquents?

With the recent rise in unemployment and wage cuts, credit card debt delinquency has significantly increased and shows little sign of slowing down. So what’s a credit card company to do? Bail you out! If you fall into the delinquency camp, there is a good chance that you may be able to negotiate an agreement with your card provider to pay off a portion of your debt in exchange for them wiping out the rest.

Increasingly, consumers are reporting that they are getting offers from their card providers to wipe out debt in exchange for payments. Few creditors are admitting to the practice. American Express and Bank of America admit to deciding on a case-by-case basis whether to accept partial payments. Other companies are keeping their lips shut, but their trade group, the American Bankers Association, acknowledges that settlements are becoming more common.

What not to do

Let’s be 100% clear. If you are NOT delinquent on your debt, it would be extremely bad practice to purposefully go into debt in the hopes to get a free ride and have your debt wiped out. There are no guarantees that any company will wipe out your debt, and the risks and costs associated with trying to pull this trick off are simply not worth it.

If you are delinquent, it would be equally as risky to go on a spending spree in the hopes that your debt will be forgotten. Be smart and ethical. Debt settlements can still show as a black mark on your credit history, and this is bad news for you. Debt settlement should be resorted to only at last option.

How to Settle your Credit Card Debt

You’ve done everything you can to get out of debt, but just can’t seem to dig out of the hole. Your only option is to settle. There is no exact science to settling debt with every credit card company, and a lot of your success will come down to your negotiation skills. This is tricky business and if you’re in doubt, you may want to consult with a lawyer or certified financial professional. Here are some suggestions if you’ve decided to go down this path based on stories that we’ve heard from others who have succeeded.

1. Stop making payments: if you’re paying off at least a portion of your debts, why would the credit card company have any reason to settle with you? Wait at least 60 to 90 days prior to making an offer.
2. Build enough cash to offer a settlement: at the same time you’ve stopped making payments, you’re going to have to have money on hand to make an offer. Perhaps you sell some of the luxuries that got you into this mess in the first place or get a second job.
3. Make your first offer: explain your situation and make an offer. 25% is a good starting point. The credit card company is probably not going to accept your first offer, so it’s good to start low. You may get a counter offer at this point – but be patient in your negotiations.
4. If you increase your offer, ask for more: ask for any black marks on your credit report to be removed in your negotiations.
5. Get it in writing: get your agreed upon terms in writing from the credit card company.
6. Make your payment: pay by money order and send via certified mail so that you can verify that you fulfilled your end of the agreement.
7. Tax significance: you will get a 1099 from your credit card company and must claim the forgiven amount as income on your tax return.
8. Learn from your mistakes: if you can’t get your credit history wiped clean, the ‘debt settled’ mark will stay on for seven years past settlement. This will result in you having difficulty getting good credit terms during this time. Learn from your mistakes so that this does not happen again.

For more of GE Miller’s writing, visit personal finance blog 20somethingfinance.com.

Here’s Mint’s credit card guide and credit card calculators to help you manage your credit.

Leo Reynolds

Credit or debit? – an important question for those trying to come out ahead in recessionary times. The answer can be a little complicated. It depends on a few things, namely, your spending habits, your ability to pay your bills on time, and the total dollar amount that you pay with debit and credit. These are the variables that you can control. Unfortunately, they’re not the only ones.

What remains to be seen are the clever tricks credit card providers will play in light of the major reform that was recently signed into law by President Obama that will go into effect in 2010. About the best you can do is take advantage of the existing rules and set yourself up for future financial success.

An Easy Choice for Some

For starters, those whom the credit card companies have feasted on can be packaged into one of the following categories.

Group #1 – Buys a little or a lot, carries a balance, pays on time.
Group #2 – Buys a little or a lot, carries a balance, doesn’t pay on time.

If you’re in one of these two groups, the answer is simple. You have been targeted. Cut up your credit cards now. If you’re using credit to pay for things you can’t afford, you are digging yourself a big hole. Even with the new regulations that will go into effect next year, credit card companies will still be able to charge late fees and whatever fee they desire. Don’t let them. Switch to paying with debit. The “I need a credit card to survive” argument is a pretty weak one, regardless of circumstance.

A New Target?

Where it gets more interesting is when you consider those who have used cards responsibly. They fall into one of the following two groups:

Group #3 – Buys a lot, no balance, pays on time, uses credit to get rewards.
Group #4 – Buys a little, no balance, pays on time, uses credit to get rewards.

The question of credit or debit is not quite as simple for these responsible bill payers that have used credit cards as a means to reap financial reward. Creditors have long offered rewards to target these consumers. In theory, it should be safe to assume that those who have credit cards for their rewards are responsible bill payers – if you’re paying 15% interest on 2% rewards, you have some things to sort out.

With the industry set to take a financial hit on regulations aimed to protect those who are typically hit with fees and high interest, there has been mention of industry backlash against the users who have been responsible and not contributed as much to the credit card companies bottom lines. It won’t be long before the industry responds with new or old ways to make up for lost revenue. If annual fees are re-instated or rewards are cut back, those who have a choice of credit or debit and may have to make some decisions regarding which they option they choose.

Debit Card Rewards – A Game Changer?

To make matters more interesting, many debit cards have begun offering rewards in the last few years. Debit card rewards tend to be a little less enticing than credit card rewards, however. Banks generally offer one point for every $2 spent with a debit card, compared with one point for every $1 spent with a credit card.

It’s worth noting that many debit card rewards programs require you to use the “signature” option of your card, which means the card is swiped, you sign for the purchase and the transaction is run through the merchant’s processing system, versus punching in a PIN code. This is because the bank collects an interchange fee for that transaction from the merchant, which would be less if you paid with the debit option using your PIN. The bank then uses those fees to offset the cost of the rewards program.

Additionally, many debit rewards cards are charging annual fees. Those that don’t tend to offer highly scaled back rewards. Less rewards, annual fees, and the possibility of getting dinged on fees for going below your checking account minimum balance? This model has a little work to do.

Seeking Optimal Return at the Lowest Expense

Regardless of how the industry changes the fees and rewards for responsible card users, the goal here should be to get the highest total return. If you spend a lot (group #3) and benefit from hundreds or thousands of dollars of rewards each year, it may make sense to eat the expense of an annual fee and use a credit cards, both of which should point towards bigger rewards.If you don’t spend much (group #4) you may want to opt for a debit card or credit card with no annual fee, even if the rewards are small. Whichever way you choose, it is important to pay your bills on time, not carry over a balance, and stay above your minimum in your checking account.

For more of GE Miller’s writing, visit personal finance blog 20somethingfinance.com.

We recently covered the why and how of purchasing a mutual fund, but you were probably left wondering what exactly you should be looking for when choosing which funds to buy. It’s a great question and can often be a daunting one for a beginning investor. In reality, it’s relatively easy to research and find good mutual funds. Once you’ve done it a few times, you may actually begin to enjoy the thrill of the hunt!

The Longstanding Mutual Fund Debate

There are two camps when it comes to choosing mutual funds. The first consists of those who believe you should invest in actively managed mutual funds that outperform their peers and their indexes over time. The second camp consists of those who believe that the only type of mutual fund you should invest in are index funds. Index funds differ from actively managed funds in that they are typically managed passively by mathematical computation and computers.

Index fund fanatics, or Bogleheads (named after Vanguard and index fund founder John Bogle) as they are affectionately referred to, often cite the fact that the majority of actively managed funds are outperformed over time by their index fund counterparts, which cost less to own.

Regardless of which camp you favor, we will provide some general guidelines to follow when you are hunting for actively managed funds and how to compare them to their index fund counterparts.

How to Comparatively Measure a Mutual Funds Performance

1. Expense Ratio: Expenses are never good. They will eat into your returns over time. Be wary of a mutual fund with a high overall expense ratio, especially if its performance lags its index and peers over time. As a benchmark, there is no real reason to purchase a fund with more than a 1.2% overall annual expense ratio, and there are many good ones that can be found for less than a 1% expense ratio. Many index funds will have much lower fees than this, but fees should not be your only determining factor.

2. Fund Manager History: Here’s a dirty little secret of the mutual fund industry – the fund itself doesn’t really matter. It’s all about who is selecting the investments, not the ‘brand’ of the fund. When you buy an actively managed mutual fund, you are purchasing the skills of that fund’s particular manager. So, what should you look for in a fund manager?
Most important is sustained long-term performance success (at least 5 years) vs. the fund’s peers and index. Look also for loyalty to the fund that you are investing in. If they move, they take their skills with them. Lastly, you’ll want to find a fund manager with an investing philosophy that jives with your personal financial goals.

3. Load or No-Load: Funds with loads should not be purchased. Period. Loads are an additional management fee that claims a percentage of your overall investment when you move in or out of a fund (often-times around a whopping 4-6%). When there are numerous equally or better performing funds available that don’t carry a load, there is no reason compelling enough to pay the extra fee. Comparatively, index funds rarely have a load fee.

4. Net Assets: In the mutual fund world, it is possible to get too big. Some of the star mutual funds end up attracting performance chasing investors. This creates a problem in that the more money a fund has to invest, the less nimble it becomes. As a benchmark, stay away from actively managed funds that exceed $10 billion in net assets. When a fund exceeds this level, there is no real advantage to choosing it over its index fund counterpart. Many fund companies realize that this is an issue and they end up creating ’sister’ funds that mirror the strategy of the original fund, but with much less in the form of assets to slow them down.

5. Performance: If a managed fund is under-performing its peers and its comparable index fund, you’re probably better off going with their index fund and saving on the expenses. Look for long-term sustained success of at least 5 years, but preferably 10 or more.

Where do you Find all of this Information?

Most major investment aggregators will contain all five of the previously mentioned metrics and more. A few favorites to whittle down your possible fund selections are:
Morningstar’s mutual fund screener
Yahoo Finance fund screener

Once you have narrowed it down to a few funds, you’ll want to use tools such as those found at Morningstar and Google Finance to research each fund. You may also want to read the prospectus of the funds you are thinking of before making your final purchase.

For more of GE Miller’s writing, visit personal finance blog 20somethingfinance.com.

Valerie Everett

The simple answer to the question ‘why should I buy a mutual fund?’ recalls the proverbial joke about the chicken crossing the road. The answer, ‘to get a good return on my investment’, or even more simply ‘to make money’ seems so obvious as to be almost an insult to one’s intelligence. But mutual funds are just one of a variety of potential investment vehicles. Stocks, bonds, and other investments that are available for purchase also offer the potential to make money. So what makes mutual funds the investment of choice for many? When you boil it down, mutual funds provide three major benefits for those who decide to invest in them:

1. Diversification, 2. Expertise, .. and 3. Time

What do each of these mean?

Diversification: In times of high volatility and risk, owning one, two, or even five different stocks, bonds, or whatever security you’d like to invest in can be risky in that there is simply no guarantee that your picks are going to be winners. Mutual funds, on the other hand, offer risk diversification. This means that funds purchase more than a few different investments and the risk of losing significantly in any one investment is minimized by being distributed over a number of investments.

Expertise: You can be fairly certain that professional mutual fund managers have more research, knowledge, connections, and experiences at their disposal than you do. However, expertise and resources don’t always produce stellar results. In fact, only 31% of actively managed stock-based mutual funds outperformed the S&P 500 over the five years ending Dec. 31, 2008. That’s why many investors choose index mutual funds as an alternative to actively managed funds. Index funds simply aim to match the performance of the index that they are following. Since index funds don’t have professionals choosing the investments, their fees tend to be lower than actively managed funds. Whether you choose index or actively managed funds, you are paying for the expertise and convenience offered by those funds.

Time: Without professional resources at your disposal, successful investing can take an extreme amount of time and energy. There is a very high learning curve involved in investing that few have enough time to pick up. If you opt to buy more investments in order to diversify, your time commitment only increases. Opting to put your money into mutual funds frees the time that it takes to research and keep up with each of your individual investments.

How to Purchase a Mutual Fund

If you’ve determined that you want to purchase a mutual fund, here’s how you can do it, step-by-step.

1. Choose a discount brokerage (i.e. Zecco, Scottrade, Etrade, Fidelity, Schwaab, etc.) to purchase your fund through. You could opt to invest in mutual funds through a full service advisor, but there is a wealth of comparative resources available to help you choose your fund for free so that you can purchase through a low fee discount broker instead.

2. Start an investment account through your broker. This could be a a general trading account or a retirement account such as a Roth IRA or Traditional IRA.

3. Research. In an upcoming post, we’ll highlight what you should look for in a mutual fund. For starters, you may want to focus on choosing a fund that consistently has at least met and preferably beat the performance of its peers at a fee that is lower than its peers.

4. Fund your Account: You must send in money via check, wire, or other deposit to your discount broker. Once your account has funds available, you can make your mutual fund purchase.

5. Make your Purchase. Enter a dollar amount that you’d like to apply towards the fund. This differs from entering a price you want to pay as you do when you purchase a stock. The price you will pay for each share will be the closing price on the day that you purchase the fund. The amount you enter will be divided by that share price to determine how many shares of the fund you will receive. When you first purchase a fund, you need to indicate whether you would like your dividends, capital gains, or both reinvested into additional shares. You can change this election at a later time. There is little reason not to choose ‘both’.

Some funds offer no transaction fees when you make a purchase. For those that do charge a fee (typically $25-50) you do not have to pay this fee when you purchase additional shares of the same fund. It’s also worth noting that many funds require a minimum initial purchase that depends on what type of investment account you are using.

6. Add to your Shares Over Time at your Discretion

For more of GE Miller’s writing, visit personal finance blog 20somethingfinance.com.